World Bank doesn’t visit its past!

Major reductions in poverty are possible, but achieving these will require a more comprehensive approach addressing directly the needs of the poor in the areas of opportunity, empowerment and security, the World Bank said in its World Development Report 2000/2001.

by Chakravarthi Raghavan

Geneva, 12 Sep 2000 -- Major reductions in poverty are possible, but achieving these will require a more comprehensive approach addressing directly the needs of the poor in the areas of opportunity, empowerment and security, the World Bank said on 12 September in its ‘World Development Report 2000/2001: Attacking Poverty’.

The report, two years in preparation and embroiled in controversies that led to the resignation of the leader of the team, Prof. Ravi Kanbur (of Cornell University) over the US Treasury’s pressures on the Bank to change the report’s policy thrust, was unveiled on 12 September, on the eve of the annual Fund-Bank meetings at Prague.

The Kanbur draft, which had been posted on the internet for NGO interactions, had been very critical of the IMF/World Bank structural adjustment policies and advices and conditionalities, and also of the market-trade liberalization dogmas thrust on all developing countries.  In a clash that this produced, particularly strong criticism to Bank President Wolfensohn from Larry Summers, the US Treasury Secretary, Kanbur quit.

The World Bank chief economist and vice-president, Mr.Joseph Stiglitz, under whose general direction work on the report began (sometime last year) has also since quit - after voicing publicly differences with the US Treasury and IMF policies.

The WDR 2000/2001 advances views and policy advices and options on poverty and poverty reduction, and a range of national and international policies to attack poverty—by providing the poor with “opportunity”, “empowerment” and “security”—and cites the Bank’s efforts through four or five decades of development lending to promote growth and development and deal with poverty.

The Danish philosopher Soren Kierkegaard, in one of his writings has said: “Only Robbers and Gypsies say that one must never return where one has once been”.

To this illustrious group must perhaps be added the World Bank and its staff economists.

For while long on anecdotal experiences, and moving between economic and sociological ones, on the causes of poverty and how to “attack” it, the Bank appears to be quite coy in either acknowledging, leave aside saying a mea culpa, its own contribution to impoverishment through the conditionality lending and policy advices forced on countries, since the days of Robert McNamara’s stewardship from the late 1960s and the programme lending initiated by him, through the IMF/World Bank structural adjustment lending of the 1980s to the Washington Consensus of the 1990s and now.

Asked at a media briefing whether the report has dealt with and acknowledged the wrong policy advices that the Bank itself has advocated and pressed under conditionality loans on developing countries, Ms. Christina Malmberg Calvo, World bank staff economist, referred questioners to chapters 3 and 4 of the report.

But the two chapters, in Part II of the Report, addressing issues of “opportunity”, and dealing with ‘Growth, Inequality and Poverty’ and ‘Making Markets Work Better for Poor People’ do not seem to deal with the mistakes and errors of past policy advises of the Bank - whether of market reforms, privatization, trade liberalisation, financial and capital market liberalization, pricing of public goods and utilities in the developing world (water, health, education) etc.

Like the ‘Better World For All Report’—that the UN, the Fund, the Bank and the OECD launched at the Copenhagen+5 World Social Summit in June here - the report has identified seven development goals, which it says the international community has set itself “based on discussions at various UN Conferences in the 1990s”, including the definition of poverty on the basis of $1 (1993 purchasing power parity) a day, and uses this yardstick (defined by itself, and adopted in the Better World for All report by UN Secretary-General Kofi Annan) and the 1998 data, to claim that poverty is being reduced in East Asia and to some extent in South Asia, but rising in numbers elsewhere.  Between 1987 and 1988, the share of the population in developing and transition economies living on less than $1 a day fell from 28 to 24 percent; but this is a decline below the rate needed to meet the international development goal of reducing extreme income poverty by half by 2015, the WDR says.

What the Bank does not say, is that if the data for China and India in South Asia are excluded, the poverty picture that emerges is very different. And both China and India managed to grow fast over the 1990s, and managed to escape the financial crises of 1997-1998, mainly because they have been sometimes following policies in disregard of the IMF/World Bank advices - without openly announcing it.

Having provided all this time, in country policy advices and the Structural Adjustment Programme loans and conditionalities, a more or less ‘one-size-fit-all’ policy advice, the WDR now says: “There is no simple, universal blueprint for implementing this strategy. Developing countries need to prepare their own mix of policies to reduce poverty, reflecting national priorities and local realities. Choices will depend on the economic, sociopolitical, structural, and cultural context of individual countries - indeed individual communities.”

The WDR advocates a three-fold strategy for poverty reduction—under the heading of ‘Promoting Opportunity, Facilitating Empowerment and Enhancing Security’.

Under the first, it calls for measures to provide the poor with jobs, credit, roads, electricity, markets for their produce, and schools, water, sanitation and health. It then says: “Market reforms can be central in expanding opportunities for poor people, but reforms need to reflect local institutional and structural conditions. And mechanisms need to be in place to create opportunities and compensate the potential losers in transition...”

Under the second, it says that achieving access for the poor, responsibility and accountability is intrinsically political and requires active collaboration in society, a collaboration that could be facilitated by changes in governance that make public administration, legal institutions and public service delivery more efficient and accountable to citizens.

The WDR also calls for policies and actions to reduce vulnerability of the poor to economic shocks, natural disasters, ill-health, disability and personal violence.

Investment and technological innovation, the WDR says, are the main drivers of growth in jobs and labour income, and calls for policies to foster investment and “reducing risk” for private investors - through stable fiscal and monetary policy, stable investment regimes, sound financial systems and clear and transparent business environment, with private investment being complemented by public investment to enhance competitiveness and create new market opportunities.

The WDR has not of course abandoned its advocacy of trade liberalization or capital market liberalization—the two areas where Prof Kanbur’s initial drafts had raised some questions, bringing in objections from Lawrence Summers, and leading to Kanbur’s exit.

But the WDR now talks of international markets offering a huge opportunity for job and income growth - in agriculture, industry and services - but concedes that opening to trade may create winners and losers - making a concession of sorts to critics of its past policies about trade liberalisation being always a plus. Such opening to trade, it concedes, “needs to be well designed, with special attention to country specifics and to institutional and other bottlenecks, with the sequencing of policies to encourage job creation and manage job destruction."

It also talks of the need to manage prudently the opening of capital markets - to reduce the risks of high volatility in capital flows. It then adds: “Long-term direct investment can bring positive externalities, such as knowledge transfer, but short-term flows can bring negative externalities, particularly volatility. Policies need to address them separately.”

But studies undertaken and published for the Group of 24 (the developing country group before the IMF/World Bank), and some in the process of being prepared and published, suggest that foreign direct investment can lead to knowledge (and technology transfer) only in cases where the governments can exercise some control and direction.  And some recent studies (that are being processed for publication) suggest that foreign direct investment does not even lead to capital or technology accumulation or innovation in developing countries.

The WDR makes the appeal, at a more general level, of the policies and actions of developing and transition economies being supported by international actions, including actions by industrialized countries in opening up their markets more completely to imports from poor countries, especially in agriculture and labour-intensive manufactures and services. It also calls for more aid and financing by the developed world of debt relief through the heavily indebted poor countries debt relief initiatives.

It is ironic that coinciding with the release of the WDR are technical-level meetings with IMF deputies in the interim committee that the British Chancellor of Exchequer, Mr. Gordon Brown (the Chairman of the Interim Committee for the Prague meetings) is holding in London on the Prague agenda. One of the deputies explained privately that developing countries and transition economies (who borrow from the Fund and the Bank), are being sought to be ‘persuaded’ to agree to an increase in the lending rates of the loans from the IMF, so that the increased incomes could be used to finance the HIPC initiative!

Answering other questions, particularly about what the Bank was doing to ensure TNCs promote development and need of poverty reduction and provision of public goods and research etc, particularly in the face of the powerlessness of governments of countries in the face of TNCs and capital markets, the bank officials and a representative of the Washington-based Overseas Development Council spoke of the efforts to provide HIV/AIDS vaccines and other contributions of pharmaceutical TNCs to vaccines and medicines for diseases like river blindness.

When a correspondent pointed that these were all public relations exercises of some pharmaceutical TNCs, and that their entire research expenditure was on problems of developed countries and not developing countries, the Bank officials spoke of their increasing the loans for education and health.

But beyond saying that the loans to IDA-eligible countries carry no interest, and others interest, the bank officials could not or would not answer the interest charged on such loans for provision of public good. The Bank officials also admitted that there was a serious problem as to who would benefit from the publicly funded research activities, and in particular in terms of patents etc, but again had no definite answers on the Bank’s policies in these areas.-SUNS4738

The above article first appeared in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.

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